An independent film financing plan can help you form a strategy to make the tricky process of film financing much easier. A good plan will help you break down your funding needs so they become more manageable and allow you to identify risks associated with such things as currency variations and own deferments. We offer examples of financing plans for both raising money during the pre-production phase, as well as the financing payback (distribution waterfall) for after the film's release.
The Financing Plan
When you network to get investors involved in your project, and are trying to earn their trust in that you will deliver what you promise them, you will most likely find yourself in situations where the potential investor asks questions like: What does the financing plan look like? Who else is investing in this? How are we being repaid?
You will most likely also find yourself in situations where the potential investor will only be able to put up part of the financing, on the condition you can the raise the rest.
For example, an investor is willing to put up 20% if you can raise the other 80%.
Hopefully, after some hard work and lots of meetings, you will find yourself in a situation where you have 100% of the financing if you put all these film financing sources together. This is where the financing plan comes in handy.
Creating the Independent Film Financing Plan
When creating an independent film financing plan, you first have to distinguish what financing is equity from a financial business partner, and what financing are some sort of pre-sales on the property. You could either go out to try to find a long term business partner, multiple equity partners that all will own a share of your property (in a specific project) - or you could try to pre-sell part of the property you’re going to produce (like distribution rights for a foreign territory).
This being said, understand you will not need to find an investor willing to put up a $1,000,000 for you to produce your movie. Instead you might try to find 10 investors that are each willing to invest $25,000 for a total of $250,000. Then pre-sell rights for another $250,000 - and then make deals with cast, crew and equipment houses - based on deferred payments for a total of $500,000. Then you'll have your $1,000,000 in place, so breaking it down like this will likely make the process of film financing much easier.
During the film financing process, the Investor Agreement and Financing Plan should specify how far you've come in the process with all financing parties involved. Such as which funds in the financing plan are "secured", how many of the investors have drafted LOI’s (Letter of Intent), when you expect to hear back from any applications for grants or other investors that are part of the financing plan, and other similar information.
There should also be a time schedule, with a clear deadline for every part of financing, so anyone reviewing the financing plan can understand when the process of financing will be completed, and when the producer will be able to notify all financiers on the outcome (if the process of financing was successful or not). Should a deadline be reached without confirmed financing, the producer needs to contact all the investors, start over and have them reconfirm their offer to invest. This way investors know their offer will only be good for a period of time and their funds are not tied up forever in a movie that may never see the light of day. There are a few things that can halt the process of financing and have it stuck in a "catch 22", such as the absence of clear deadlines.
As film finances are usually based on contributions and deferred payments to the production company (or close parties), the producer is often required to specify what they are, how the producer estimates the value these contributions and to what the deferred payments relate. In most cases, this is a description of how the producers estimate the value of his production company’s equipment, his own work and so on.
When you work with international co-productions and/or productions with financing in different currencies, you also need to create a financing plan that shows the financing in these different currencies, as well as current exchange rate, since this affects such things as taxation and "cultural evaluation.” The producer should try to minimize the need for financing by raising financing in the currency that is most beneficial, keeping the exchange rates favorable and the cost as low as possible. Companies like London based SGM-Foreign Exchange has established a niche in this process and also offer insurances against currency variations.
Sample Film Financing Plan and Film Distribution Waterfall (from a real movie)
While the Financing Plan above shows the process of collecting money before production, following demonstrates a sample of paying back the money post movie release. This information should be included in your Film Investor Agreement and/or your Film Business Plan.
My Production Company, LLC, has been formed to produce, market and distribute a Family/Drama/Sports feature film known as The Movie, co-written by John Smith, Maggie Smith (Disney’s Princess Jasmine) and Laura Smith.
My Production Company, LLC., a Californian corporation.
Securities Being Offered
Units of membership interest in the Company.
$25,000.00 per Unit, with each Unit representing a 2.5% membership interest in the Company provided that the Manager, in its sole discretion, may accept subscriptions for Units in amounts smaller than $25,000.00.
The Units are being offered on a “best efforts” basis subject to a minimum sale of 12 Units and a maximum sale of 20 Units.
The Units are being offered for a period ending September 30, 2012, subject to such period being extended to October 31, 2012, in the sole discretion of the Company.
Conditions to Closing
The closing of this offering is conditioned upon the receipt of subscriptions for at least 12 Units and other closing conditions customary to a transaction of this type.
Estimated Net Proceeds
Assuming the sale of 12 units, $300,000.00 after deducting an estimated $0 payable in fees and expenses to be incurred by the Company in connection with this offering. Assuming the sale of 20 Units $500,000.00 after deducting an estimated $0 payable in fees and expenses to be incurred by the Company in connection with this offering.
Share of Profits and Losses
Investors will enjoy an aggregate total of a 30% to 50% allocation of the profits and losses of the company.
Modification of Terms
The Manager reserves the right in its discretion to modify the terms of this offering with respect to particular prospective investors as appropriate.
Application of Proceeds
Net Proceeds from the sale of the Units will be utilized by the Company to finance the acquisition, development, production, marketing and distribution of The Movie.
The gross revenues to be generated by the Motion Picture includes the proceeds from its sale, licensing, distribution and exhibition in the United States and foreign theatrical, home video, television, satellite and cable markets.
Revenues from the picture will be disbursed in the order set forth below:
First, any producer rep or sales agent fees and sales expenses (i.e. marketing costs, legal costs and directly related sales costs) that must be paid ‘off the top.’ Generally 20-30% of the proceeds. Then to:
In the case of a royalties deal with distributors, a distributor’s manufacturing and marketing costs must be recouped before the producer receives any share of revenue. Additionally, distributors will take a pre-negotiated cut of gross sales. These deal structures are highly variable and are generally at the discretion of the distributor. However, the Company will aim to negotiate the most beneficial deals possible for the producers and investors at all times. Then to:
Some cast and crew may be paid on a partly cash, partly deferral basis. Most deferrals will be paid after Payout, but some may have to be paid prior to Payout. Then to:
Investors shall recoup 100% of their investment, on a pro rata basis with all investors, out of any cash available for distribution until full investment is recouped plus 20%. Then to:
Finally, any remaining amounts, after payment of all remaining and on-going third-party, out-of-pocket expenses relating only to the Motion Picture, will be paid as follows: Investors will enjoy an aggregate total of a 30% to 50% allocation of the profits and losses of the company.
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